The Wells Fargo Investment Institute strategists discuss the roles consumers, commodities, and currencies play in the world economy and how they can help shape the markets.
Alternative investments are not suitable for all investors. Any offer to purchase or sell a specific alternative investment product will be made by the product’s official offering documents. Investors could lose all or a substantial amount investing in these products.
All investing involve risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful. Investments fluctuate with changes in market and economic conditions and in different environments due to numerous factors some of which may be unpredictable.
Private Capital funds are complex, speculative investment vehicles and are not suitable for all investors. They are generally open to qualified investors only and carry high costs and substantial risks and may be highly volatile. There is often limited (or even non-existent) liquidity and a lack of transparency regarding the underlying assets. They do not represent a complete investment program.
The investment returns may fluctuate and are subject to market volatility so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Private Capital funds are not required to provide investors with periodic pricing or valuation and are not subject to the same regulatory requirements as mutual funds. Investing in Private Capital funds may also involve tax consequences. Speak to your tax advisor before investing. An investment in a Private Capital fund involves the risks inherent in an investment in securities as well as specific risks associated with limited liquidity, the use of leverage, and illiquid investments. There can be no assurances that a manager’s strategy will be successful or that a manager will use these strategies with respect to all or any portion of a portfolio. Please carefully review the Confidential Private Placement Memorandum or other offering documents for complete information regarding terms, including all applicable fees, as well as other factors you should consider before investing.
Other risk associated with the asset classes discussed in this report include:
Commodities: The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or other factors affecting a particular industry or commodity.
Currency: Currency risk is the risk that foreign currencies will decline in value relative to that of the U.S. dollar. Exchange rate risk between the U.S. dollar and foreign currencies may cause the value of a portfolio’s investments to decline.
Fixed Income: Investments in fixed-income securities are subject to market, interest rate, credit/default, liquidity, inflation, and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline in the bond’s price. Credit risk is the risk that an issuer will default on payments of interest and/or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed-income securities are subject to market risk. All fixed-income investments may be worth less than their original cost upon redemption or maturity.
Emerging Markets: Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.
Real Estate: Investing in real estate investment trusts (REITs) has special risks, including the possible illiquidity of the underlying properties, credit risk, interest rate fluctuations, and the impact of varied economic conditions.
Stocks: Stocks offer long-term growth potential but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations. A portfolio that is concentrated in certain sectors of the economy may subject it to more risks than a portfolio that is broadly diversified over numerous sectors of the economy. This will increase the portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector or the industries within the sector and may result in greater price volatility.
An index is unmanaged and not available for direct investment.
CPI ratio uses a composite Consumer Price Index for the main seven economies (United States, Canada, France, Germany, Britain, Italy, and Japan) in the numerator and the comparable U.S. index in the denominator. Both indices are from the Organization for Economic Cooperation and Development.
Dollar index is the Federal Reserve’s weighted average of U.S. dollar exchange rates against the euro, Japanese yen, British pound, Canadian dollar, Australian dollar, Swedish krona and Swiss franc, weighted by each country’s share in U.S. trade.
Dow Jones Industrial Average is a price-weighted average of 30 of the largest companies traded on the New York Stock Exchange and NASDAQ.
NDR Commodity Composite measures a basket of commodity prices as well as inflation. It blends the prices obtain by George F. Warren and Frank A. Pearson, the purchasing manager index (PPI) and the Thompson Reuter’s Equal Weighted Continuous Commodity Index. George F. Warren and Frank A. Pearson, former academics at Cornell, collected and published commodity price data from 1749 through 1932. The PPI measures the average changes in prices received by domestic producers for their output. The Thompson Reuters Equal Weighted Continuous Commodity Index comprises 17 commodity futures that are continuously rebalanced: cocoa, coffee, copper, corn, cotton, crude oil, gold, heating oil, live cattle, live hogs, natural gas, orange juice, platinum, silver, soybeans, sugar no. 11, and wheat.
NDR Energy Index is an equal-weighted basket of the energy commodities in the NDR Commodity Composite Index.
NDR Food Index is an equal-weighted basket of the food commodities in the NDR Commodity Composite Index.
U.S. CPI Household Fuels is a component of the Fuels and Utilities Index, which is in the Housing major group of the Consumer Price Index (CPI). The household fuels index measures the price movement of residential energy items used for heating, cooling, lighting, cooking and other appliances, and household equipment. Together with the index for motor fuels, it makes up the special index for Energy.
U.S. CPI Motor Fuel, a component of the Private Transportation Index, is included in the transportation group of the Consumer Price Index (CPI). Together with the index for household fuels, it makes up the Special Energy Index. The Motor Fuel Index is published on a monthly basis for all areas for which CPI data are published.
U.S. CPI Urban Consumers Food represents the Food group in the All Urban Consumers Consumer Price Index (CPI). The All Food Index is published on a monthly basis for all areas for which CPI data are published.
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The information in this report was prepared by the Global Investment Strategy (GIS) division of WFII. Opinions represent GIS’ opinion as of the date of this report and are for general informational purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.
This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold, or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including you existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon.
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